Budget Delays, A Weak Rand, And A Rising Cost Of Living: What’s Next For SA Consumers?

South Africa’s economic challenges are deepening, with the rand dropping by 0.3% early on Tuesday, trading at 18.64 against the U.S. dollar. At the same time, economic growth remains slow, with economists predicting a modest 0.9% growth for Q4 2024.

Sebastien Alexanderson, Head of National Debt Advisors, highlights the strain these factors, along with rising interest rates and inflation, place on South African consumers: “Consumers are already struggling with higher costs, and the uncertainty surrounding the national budget adds another layer of pressure.”

He said the weakening rand, combined with rising interest rates and inflation, is making borrowing more expensive and driving up the cost of living. “With household debt now exceeding R2.35 trillion, as per the latest Quarterly Bulletin from the Reserve Bank, South Africans are facing significant financial strain, with 9.1% of disposable income going towards debt repayments,” said Alexanderson.

Budget Uncertainty and VAT Hike Add to Economic Woes

Speaking on the postponed budget speech and anticipated VAT hike, Alexanderson highlighted that the proposed VAT increase and other budget uncertainties only add to the financial pressure, potentially pushing inflation higher and reducing disposable income.

“The proposed VAT increase from 15% to 17% would definitely make inflation worse, driving up prices on everything from food to fuel. This puts even more pressure on consumers by reducing their purchasing power, leaving them with less to cover their essential needs,” said Alexanderson.

“On top of that, the delayed budget has added more uncertainty. Without a clear fiscal plan in place, it’s hard for businesses and consumers to anticipate future tax hikes or government spending cuts. This delay only adds to the stress for South Africans who are already struggling with rising costs and financial instability,” he said.

Debt Crisis Deepens as South African Consumers Struggle to Cope

Consumers are feeling the pinch as they deal with increased loan repayments, reduced disposable income, and rising costs for everyday essentials. “Many are turning to credit cards to cover basic expenses, while spending on non-essentials like vehicles and entertainment is slowing down. This shift is contributing to a slowdown in key sectors like retail and automotive. Additionally, higher costs for electricity and water are further tightening household budgets,” said Alexanderson adding that one-third of credit-active consumers have missed more than three monthly repayments on their debt.

Advice for Consumers

1. Prioritize Debt Repayment: Focus on clearing high-interest debt first.
2. Create a Realistic Budget: Track your income and reduce non-essential spending.
3. Explore Refinancing: Look for opportunities to lower interest rates and reduce your monthly payments.
4. Seek Professional Advice: Debt management experts can provide guidance on managing your finances.
5. Build Emergency Savings: Set aside funds for unforeseen expenses to prevent further financial strain.

“Consumers need to take proactive steps to manage debt, cut unnecessary spending, and seek professional help if needed. While times are tough, there are ways to weather the storm and come out stronger on the other side.”